COSATU piles on the pressure

2009-11-21 13:11

COSATU hopes that a review of the Reserve Bank’s policies will result in the broadening of its mandate and an exchange-rate policy that ­favours a weaker rand.

Cosatu president S’dumo Dlamini says the trade union federation will push for greater influence in the task team that will review the Reserve Bank’s mandate and its inflation-targeting policy, which Cosatu blames for high interest rates and massive job losses.

Cosatu says the picture for jobs in the short-term is bleak as its shop stewards are continuously engaging management teams of companies across sectors to negotiate retrenchments and short-time.

“Job losses occupy our daily activities at the workplace. We are working hard to preserve jobs and ensure that workers are not the first casualties of the recession,” he says.

He says Cosatu projections are that the economy will have lost more than 1.2?million jobs by the end of the year.

Dlamini says the rand should be weakened because its strength has a negative impact on the South African economy and employment. He believes a rand that trades at about R7 to the US dollar is too strong and hurts exporters because they struggle to find buyers on the international markets.

“Anything between R8 and R9 to the US dollar is good for our economy because it enables our manufacturers to make money and to create jobs,” he says.

Before the Friday close of the JSE the rand was trading at about R7.57 to the dollar.

Dlamini says he was pleased with Reserve Bank governor Gill Marcus’s comment this week that she was prepared to “engage” on the issue of reviewing the central bank’s mandate.

“We have been calling for the democratisation of the Reserve Bank and we will be happy to influence the review of its mandate,” he says.

But he says he was disappointed that Marcus did not slash the interest rates as they are still “too high” to encourage consumer spending.

“We are not happy the interest rates were not changed. We need sizeable cuts of about 100 to 200 basis points. Marcus has just come in and maybe she is working on the report of the previous governor (Tito Mboweni),” he says.

The decision to review the Reserve Bank mandate was taken last weekend at a tripartite alliance summit attended by ANC bigwigs and its leftist alliance partners, Cosatu and the SA Communist Party.

Dlamini expects the task team to be in place by next March. The policy of inflation targeting has been in place since 2000. Its objective is to keep inflation within the 3% to 6% target range and whenever inflation jumps above the range the Reserve Bank responds by hiking interest rates regardless of what pushed them up.

The calls by Cosatu for deep interest rate cuts and a weaker rand come hot on the heels of a string of economic data that shows that the economy is still in a precarious situation due to the recession.

Retail sales fell by 5.1% year-on-year in September after dropping by 6.5% in August as credit-riddled and cash-strapped consumers continue to resist the temptation to go on shopping sprees.

Investec economist Kgotso Radira does not foresee a rebound in retail sales in the coming months.

“We still expect conditions to remain challenging for retailers in the coming months as the sector remains in recession this year. Given the expected slow economic recovery next year, we believe there will be only one interest rate hike in October 2010,” Radira says.

South African consumers have also lost their appetite for buying homes and cars due to banks tightening the credit tap in the face of the recession. The National Credit Regulator released figures that showed the value of home mortgages granted by the banks in the second quarter had declined year-on-year by 58.6% to R17.6?billion from R42.7?billion in the first quarter.

Commercial lenders also advanced R18.8?billion to vehicle buyers in the second quarter compared with R25.8?billion in the first quarter, a reduction of 27.2%. This shows that banks, which are being plagued by rising bad debts and dwindling profits, have adopted a cautious stance on borrowers.

Sim Tshabalala, the chief executive of Standard Bank’s South African operations, declined to comment on whether it was a wise move by Marcus to leave the benchmark repo rate unchanged at 7% in the face of a growing army of credit defaulters.

“It would be inappropriate for me to comment on the interest rate decisions by the Reserve Bank. We are simply the transmitters of the monetary policy,” Tshabalala said.

He said banks and borrowers would have to live with the current level of interest rates until the central bank adjusted them.

“If you can’t stand the heat, get out of the kitchen,” Tshabalala said.

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